Blue Shield of California Agrees to Independent Actuarial Review of Rates. Company will make refunds to policyholders if rates are unsound

SAN FRANCISCO, Jan. 14, 2011 — Responding to concerns raised about rising individual health insurance rates, Blue Shield of California announced today that it will voluntarily subject its rates to an independent actuarial review and make refunds to policyholders if the actuary finds that the rates are unsound. David Axene, the respected actuary who discovered errors in other California rate filings last year, will conduct the independent review of the not-for-profit health plan’s rates.

Approximately 194,000 Blue Shield of California Life and Health Insurance Company members recently received notices of rate increases that averaged 15% annually. Due to a variety of factors, some members received increases much higher than the average.

“We regret that our members have received significant rate increases in recent months and want to be absolutely certain that the rates reflect our actual cost of providing medical care,” said Blue Shield Chairman and CEO Bruce Bodaken. “To establish trust and confidence in our rate-setting process, we have taken the unprecedented step of agreeing to be bound by the conclusions of an independent third party. If this independent review finds that the rates are not sound, we will hold our members harmless by refunding the difference with interest.”

Mr. Axene is president of Axene Health Partners LLC, and has worked as a professional actuary since 1971. Last year, he conducted independent reviews of individual rate filings for the California Department of Insurance, where he found errors that, when corrected, resulted in lower rates for hundreds of thousands of consumers.

Mr. Axene will be free to confer with the Department of Insurance on his review, which he hopes to complete in 30-45 days. He will evaluate Blue Shield’s rate filing to determine if its calculations are accurate and its assumptions are sound. He will determine if the rates are “excessive, unjustified, or unfairly discriminatory,” which is the standard suggested by recently proposed federal rate review regulations. Whatever conclusions he reaches, his report will be made available to the public.

Despite Blue Shield’s recent rate increases, the company expects to lose $10-20 million on its individual health plan business in 2010 and another $20-30 million in 2011. Blue Shield’s total costs for hospitals, physicians and prescription drugs have risen by an average of 15% annually for each of the past three years.

“Our premiums are rising because of the rapid increase in healthcare expenses for our members,” said Bodaken. “Reducing medical costs must be an urgent national priority for health coverage to be affordable for the vast majority of Americans.”

About Blue Shield of California

Blue Shield of California, an independent member of the Blue Cross Blue Shield Association, is a not-for-profit health plan with 3.3 million members, 4,800 employees, and one of the largest provider networks in California. Founded in 1939 and headquartered in San Francisco, Blue Shield of California offers a wide range of commercial and government products throughout the state. The company has contributed more than $125 million over the past four years to the Blue Shield of California Foundation–which was named one of BusinessWeek’s 20 most generous corporate foundations. Contact your local agent or broker for more information about Blue Shield products and services, or visit the Blue Shield website at www.blueshieldca.com.